|
Items in cart [4] |
Questions? Call 888-624-8373 |
| Copyright © 2009. National Academy of Sciences. All rights reserved. Terms of Use and Privacy Statement |
Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter.
Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.
Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.
OCR for page 109
APPENDIX D
Office of Management and Budget Circular A-131
OMB Circular No. A-131
May21, 1993
TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS
SUBJECT: Value Engineering
I. Purpose
2. Supersession Information
3. Authority
4. Background
5. Relationship to other management improvement processes
6. Definitions
.
7. Policy
8. Agency responsibilities
9. Reports to OMB
10. Inspectors General audits
1. Related Guidance
12. Effective date and Implementation
3. Sunset review
14. Inquiries
I. Purpose. This Circular requires Federal Departments and Agencies to use value
engineering (VE) as a management tool, where appropriate, to reduce program and
acquisition costs.
2. Supersession Information. This Circular supersedes and cancels OMB Circular No. A-
13l, Value Engineering, dated January 26, 1988.
3. Authority. This Circular is issued pursuant to 3 ~ U.S.C. ttsection]] ~ ~ ~ 1.
4. Background. For the purposes of this Circular, value analysis, value management, and
value control are considered synonymous with VE. VE is an effective technique for
reducing costs, increasing productivity, and improving quality. It can be applied to
109
OCR for page 110
110
Sustainable Fecleral Facilities
hardware and software; development, production, and manufacturing; specifications,
standards, contract requirements, and other acquisition program documentation; facilities
design and construction. It may be successfully introduced at any point in the life-cycle
of products, systems, or procedures. VE is a technique directed toward analyzing the
functions of an item or process to determine "best value," or the best relationship between
worth and cost. In other words, "best value" is represented by an item or process that
consistently performs the required basic function and has the lowest total cost. In this
context, the application of VE in facilities construction can yield a better value when
construction is approached in a manner that incorporates environmentally-sound and
energy-efficient practices and materials.
VE originated in the industrial community, and it has spread to the Federal Government
due to its potential for yielding a large return on investment. VE has long been
recognized as an effective technique to lower the Government's cost while maintaining
necessary quality levels. Its most extensive use has been in Federal acquisition programs.
An August 1991 recent audit of VE in the Federal Government by the President's Council
on Integrity and Efficiency concluded that more can and should be done by Federal
agencies to realize the benefits of VE. Reports issued by the General Accounting Office
and agency Inspectors General have also consistently concluded that greater use of this
technique would result in additional savings to the Government.
5. Relationship to other management improvement processes. VE is a management tool
that can be used alone or with other management techniques and methodologies to
improve operations and reduce costs. For example, the total quality management process
can include VE and other cost cutting-techniques, such as life-cycle costing, concurrent
engineering, and design-to-cost, approaches, by using these techniques as analytical tools
in process and product improvement.
VE contributes to the overall management objectives of streamlining operations,
improving quality, reducing costs, and can result in the increased use of environmentally-
sound and energy-efficient practices and materials. The complementary relationship
between VE and other management techniques increases the likelihood that overall
management objectives are achieved.
6. Definitions.
a. Agency. As used in this Circular, the term "agency" means an Executive department
or an independent establishment within the meaning of sections 101 and 104~),
respectively, of Title 5, United States Code.
b. Life-cycle cost. The total cost of a system, building, or other product, computed
over its useful life. It includes all relevant costs involved in acquiring, owning, operating,
maintaining, and disposing of the system or product over a specified period of time,
including environmental and energy costs.
OCR for page 111
Appendix D
c. Cost savings. A reduction in actual expenditures below the projected level of costs
to achieve a specific objective.
d. Cost avoidance. An action taken in the immediate time frame that will decrease
costs in the fixture. For example, an engineering improvement that increases the mean
time between failures and thereby decreases operation and maintenance costs is a cost
avoidance action.
e. In-house savings. Net life-cycle cost savings achieved by in-house agency staff
using VE techniques.
f. Contracted savings. Net life-cycle cost savings realized by contracting for the
performance of a VE study or by a Value Engineering Change Proposal submitted by a
contractor.
g. Total Quality Management (TQM). A customer-based management philosophy for
improving the quality of products and increasing customer satisfaction by restructuring
traditional management practices. An integral part of TQM is continuous process
improvement, which is achieved by using analytical techniques to determine the causes
of problems. The goal is not just to fix problems but to improve processes so that the
problems do not recur. Value engineering can be used as an analytical technique in the
TQM process.
h. Value Engineering. An organized effort directed at analyzing the Unctions of
systems, equipment, facilities, services, and supplies for the purpose of achieving the
essential Unctions at the lowest life-cycle cost consistent with required performance,
reliability, quality, and safety. These organized efforts can be performed by both in-house
agency personnel and by contractor personnel.
i. Value Engineering Change Proposal (VECP). A proposal submitted by a contractor
under the VE provisions of the Federal Acquisition Regulations (FAR) that, through a
change in a project's plans, designs, or specifications as defined in the contract, would
lower the project's life-cycle cost to the Government.
j. Value Engineering Proposal (VEP). An in-house agency-developed proposal, or a
proposal developed by a contractor under contract to provide VE services, to provide VE
studies for a Government project/program.
7. Policy. Federal agencies shall use VE as a management tool, where appropriate, to
ensure realistic budgets, identify and remove nonessential capital and operating costs, and
improve and maintain optimum quality of program and acquisition functions. Senior
management will establish and maintain VE programs, procedures and processes to
provide for the aggressive, systematic development and maintenance of the most
effective, efficient, and economical and environmentally-sound arrangements for
conducting the work of agencies, and to provide a sound basis for identifying and
reporting accomplishments.
OCR for page 112
112
efforts.
Sustainable Federal Facilities
8. Agency responsibilities. To ensure that systemic VE improvements are achieved,
agencies shall' at a minimum:
a. Designate a senior management official to monitor and coordinate agency VE
b. Develop criteria and guidelines for both in-house personnel and contractors to
identify programs/projects with the most potential to yield savings from the application of
VE techniques. The criteria and guidelines should recognize that the potential savings are
greatest during the planning, design' and other early phases of
projectlprogram/system/product development. Agency guidelines will include:
l.Measuring the net life-cycle cost savings from value engineering. The net life-
cycle cost savings from value engineering is determined by subtracting the Government's
cost of performing the value engineering function over the life of the program from the
value of the total saving generated by the value engineering function.
2.Dollar amount thresholds for projects/programs requiring the application of VE.
The minimum threshold for agency projects and programs which require the application
of VE is $1 million. Lower thresholds may be established at agency discretion for
projects having a major impact on agency operations.
3.Criteria for granting waivers to the requirement to conduct VE studies' in
accordance with the FAR 48.201(a).
4.Guidance to ensure that the application of VE to construction projects/programs
and other projects/programs, will include consideration of environmentally-sound and
energy efficient considerations to arrive at environmentally-sound and energy efficient
results.
c. Assign responsibility to the senior management official designated pursuant to
[[section]]8a above, to grant waivers of the requirement to conduct VE studies on certain
programs and projects. This responsibility may be delegated to other appropriate
officials.
d. Provide training in VE techniques to agency staff responsible for coordinating and
monitoring VE efforts and for staff responsible for developing, reviewing, analyzing, and
carrying out VE proposals, change proposals, and evaluations.
e. Ensure that funds necessary for conducting agency VE efforts are included in
annual budget requests to OMB.
f. Maintain files on projects/programs/systems/products that meet agency criteria for
requiring the use of VE techniques. Documentation should include reasons for granting
OCR for page 113
Appendix D
waivers of VE studies on projects/programs which met agency criteria. Reasons for not
implementing recommendations made in VE proposals should also be documented.
g. Adhere to the acquisition requirements of the FAR, including the use of VE clauses
set forth in Parts 48 and 52.
h. Develop annual plans for using VE in the agency. At a minimum, the plans should
identify both the in-house and contractor projects, programs, systems, products, etc., to
which VE techniques will be applied in the next fiscal year, and the estimated costs of
these projects. These projects should be listed by category, as required in the agency's
annual report to OMB. VEP's and VECP's should be included under the appropriate
category. Annual plans will be made available for OMB review upon request.
i. Report annually to OMB on VE activities, as outlined below.
9. Reports to OMB. Each agency shall report the Fiscal Year results of using VE annually
to OMB, except those agencies whose total budget is under $10 million or whose total
procurement obligations do not exceed $10 million in a given fiscal year. The reports are
due to OMB by December 3 Ist of the calendar year, and should include the current name,
address, and telephone number of the agency's VE manager.
The report format is provided in the Attachment.
Part I of the report asks for net life-cycle cost savings achieved through VE. In addition,
it requires agencies to show the project/program dollar amount thresholds the agency has
established for requiring the use of VE if greater than $1 million. If thresholds vary by
category, show the thresholds for all categories. Savings resulting from VE proposals and
VE change proposals should be included under the appropriate categories.
Part II asks for a description of the top 20 fiscal year VE projects (or all projects if there
are fewer than 20). List the projects by title and show the net life-cycle cost savings and
quality improvements achieved through application of VE.
Part III requires agencies to submit a detailed schedule of year-by-year cost savings, cost
avoidances and cost sharing with contractors for each program/project for which the
agency is reporting cost savings or cost avoidances. The aggregate total of all schedules
shall equal the totals reported in Part I.A. of the annual report.
10. Inspectors General audits. Two years after the issuance of this revised Circular,
Agency Heads shall ask the Inspectors General (IGs) to audit agency value engineering
programs to (l) validate the accuracy of agency reported value engineering savings and
(2) assess the adequacy of agency value engineering policies, procedures and
implementation of this revised Circular. Periodically thereafter' agency IGs shall audit
agency reported VE savings as the need arises.
OCR for page 114
114
Sustainable Federal Facilities
~ 1. Related Guidance. In general, value engineering investments should have positive net
present value when discounted with the appropriate interest rate, as described in OMB
Circular No. A-94, section 8.c. For detailed guidance on value engineering, refer to the
appropriate sections of the Federal Acquisition Regulations.
12. Effective date and Implementation. This Circular takes effect within 30 days of its
publication in the Federal Register. Heads of departments and agencies are responsible
for taking all necessary actions to assure effective implementation of these policies, such
as disseminating this Circular to appropriate program and other staff, developing
implementation strategies and initiating staff training. Since these policies must be
implemented in the Federal Acquisition Regulation (FAR), agencies should not duplicate
the development of implementing procurement regulations being undertaken by the
Federal Acquisition Regulatory Councils. However, implementation of these policies in
the FAR must be accomplished within the time period specified below, with inclusion in
agency solicitations and resulting contracts, as appropriate, to occur immediately
thereafter.
Pursuant to subsections 6(a) of the Office of Federal Procurement Policy Act, as
amended, (41 U.S.C. 401 et seq.), the Federal Acquisition Regulatory Councils shall
ensure that the policies established herein are incorporated in the FAR within 180 days
from the date this Circular is published in final form in the Federal Register.
Promulgation of final FAR regulations within that 180 day period shall be considered
issuance in a "timely manner" as prescribed in 41 USC 405(b)."
13. Sunset review. The policies contained in this Circular will be reviewed by OMB five
years from the date of issuance.
14. Inquiries. Further information about this Circular may be obtained from the Office of
Management and Budget (OMB)' 725 1 7th Street, NW' Washington' DC 20503'
Telephone (202) 395-6803.
Leon Panetta
Director
Attachment
Representative terms from entire chapter:
federal acquisition
